ACCUMULATED EARNINGS TAX

June 25, 2019

A basic question for section 199A experts is when a business should elect to be a C corporation rather than a pass-through business.  Below in quotes are the title, a listing about the author, and the first couple of paragraphs of an article in Tax Notes about C corporations and the Accumulated Earning Tax.

Now I Am a C Corp: What About the Accumulated Earnings Tax?

Cory J. Stigile

In this article, Stigile provides background on the accumulated earnings tax and explains the steps corporate taxpayers may be able to take if the government begins to more actively audit and litigate the accumulation of profits.

The Tax Cuts and Jobs Act reduced the corporate tax rate from 35 percent to 21 percent, providing an additional significant incentive to conduct business through a corporation. Shareholders may be tempted to keep additional earnings in the corporation, rather than declare a dividend or pay compensation subject to an additional layer of tax at the individual level. The accumulated earnings tax (AET) and other code provisions discussed below may now play a bigger role in curbing excessive accumulation of profits and some types of passive income in corporations without the payment of dividends. There are several steps taxpayers may take to prepare should the government begin more actively auditing and litigating these issues.

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